Fresh out of college with debt

Let’s break it down!

Let’s call this anonymous contributor Alex who has graciously asked the group on his personal situation:

Background: Alex is aged 25 to 29 years old and just graduated from a local university

Income: Drawing a $2.5k monthly basic pay

Debt: Student loan amounts to $29k left to pay

Expenses: Supporting family with $500 a month with other daily expenses

Savings: Currently stand at $2k

It is clear he/she is confused between the allocation between paying down of his loan and building up savings. What happened next was really interesting with over 14 different community members from different backgrounds sharing their views on Alex’s situation.

The Community Helps Out!

I’m going to use one of the community answers by Siti as a framework. It’s the best reply because she actually used and shared her own situation where she was in a worse situation but ultimately pulled through. Thank you, Siti for graciously sharing your thoughts! 🙂

You can view the full post here. If you cannot see it, simply press ‘join community‘ and we’ll accept you in!

TL;DR: Pay off as much as possible, educate yourself

“I went through a worse situation, as compared to yours; mine was lower salary, higher loans 90k for school, hospital/specialist medical, family expenses 6 young siblings and I live on own so I got my own set of utilities, bills etc too.”

Here’s what she did:

1) Buy Term Life, Personal Accident & Health insurance

Especially important if your family depends on you as they will be covered, so you don’t need to come up with additional cash

It was an important base for her to not put her family in further debt

Term life: This is a purely coverage focused product, where all your yearly premiums (lower than whole life) go into coverage, so in case of death, your family gets paid the total sum assured

Personal Accident: To cover outpatient accidental medical expenses

Health (Hospitalisation and Surgical): This covers the really expensive Hospital and surgical bills and outpatient care, usually this is an enhancement to Medishield Life

Do u have any close seniors/mentors that can afford to help u pay off the bank and u pay them a lower rate of interest than bank?

That would be Another way to look at it to clear the loan

Aik Kai:

To me… a 3 prong approach.

Live a frugal lifestyle > Return loan first > Save for rainy days

Boon Chong Lau:

After put aside the amount for saving/room rental/food/transport/allowance for parent/insurance, dump all other disposable cash into loan paying (include bonus/inventive).

You may reward yourself with small portion of your bonus to get yourself in some short getaway in nearby countries.

Live frugally but not dull before paying off all the TFL (Tuition Fee Loan). Keep yourself motivated and rewarded in some way you prefer.

Matt Lim:

I went through a similar situation also, but for me, it was better cos I didn’t have to support my family with $500, I gave $200 only.

In my opinion, don’t worry about saving up the buffer first, just pay off the student loan as fast as you can, however, if it’s a fixed monthly repayment that’s maybe stretched across 3 years or 4 years, there is a personal strategy I can share with you.

Of course, do as what the rest have said, live frugal lifestyle, buy Hospital insurance so if anything happens you won’t be hit with another debt, and save as much as you can while repaying the monthly instalment for the student loan, these savings can act as both a buffer and to repay lump sum back to the student loan.

Eg. you save $300 every month and at the end of 2 years you have $7200, this would be your buffer in case u suddenly get retrenched or whatever, at the same time treat this pot of money as your loan repayment money, once you accrue enough to one shot pay back the remaining loan, do it.

So this pot of savings cater for 2 scenario, if within the course of returning the loan you get retrenched or can’t work, use this pot as a buffer to get you through till your next job, 2nd scenario is if everything goes well, as soon as the pot is equal to the remaining loan amount, pay it off one shot.

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